A STUDY ON WORKING CAPITAL MANAGEMENT AND ITS EFFECT ON LIQUIDITY

Abstract - This study focuses on evaluating the impact of
working capital management on the liquidity position of firms
and its overall influence on short-term financial stability.
Working capital management is a crucial area of financial
management that involves the efficient control and utilization
of current assets and current liabilities. It mainly includes
components such as cash, inventory, accounts receivable, and
accounts payable, which directly affect a firm’s operational
efficiency and liquidity position.The main objective of this
research is to analyze the relationship between working
capital management and liquidity by using secondary data
collected from the financial statements of selected companies
over a specific time period. A quantitative research approach
has been adopted to measure liquidity performance and assess
how effectively firms manage their working capital. Various
financial ratios such as current ratio, quick ratio, and other
liquidity indicators are used to evaluate the efficiency of
short-term fund management.The analysis reveals that
effective working capital management plays a significant role
in improving a firm’s liquidity position and ensuring smooth
business operations. Companies that maintain an optimal level
of working capital are better equipped to meet their short-term
obligations without financial pressure, thereby maintaining
operational continuity and financial stability. Proper
management of receivables ensures timely cash inflows,
efficient inventory control reduces unnecessary holding costs,
and effective management of payable supports better cash
flow planning.
Keyword: Working Capital Management , Financial
Management , Current assets and Current liabilities ,
Accounts receivable, and Accounts payable , Cash Flow